I am fed up with trickle-down stimulus plans. Tax credits for mortgage payments would cut the foreclosure rate and fix the toxic debt.

It's hard to break old habits. I think Obama and his economic team are heading in the right direction, but they keep missing the mark.

If I could recommend a specific plan, it would be to provide tax credits for up to $30k/year in mortgage payments for primary residences for the next 2 years. This relatively cheap solution maintains free market capitalism with all the good incentives, and would dramatically reduce the foreclosure rate -- particularly for those paying less than $30k/year for their mortgages. The plan could be extended or expanded, if necessary, of course.

The result, of course, would be a reduction in mortgage defaults, an increase in the value of mortgage backed securities (MBSs), and a recovery of the financial strength of the lending institutions and pensions that hold MBSs. Essentially, this would repair the cause of the credit crisis rather than throwing money away at the symptoms.

As soon as it is announced, assumptions about foreclosure rates would fall, raising the value of MBSs the same day.

Labels: mortgage, Public Policy, The FED